According to this New York Times article, A Plan for Forbearance, due to continuing high unemployment "federal regulators are intensifying efforts to curb the effects of job losses or underemployment before they fuel another wave of home foreclosures. The Federal Deposit Insurance Corporation (FDIC), which protects consumer deposits when banks fail, recently recommended that lenders provide certain borrowers with a temporary respite from mortgage payments, or a forbearance. That relief would last up to six months, and sometimes longer, as the lenders work on long-term loan modifications." This new forbearance plan was announced in September 2009.

The article quotes Michael H. Krimminger, the special adviser on policy to the FDIC chairwoman Sheila C. Bair, as saying "We want to make sure lenders do this as a strategy to mitigate losses to the F.D.I.C., but also because it’s the right thing to do."

According to the article, the FDIC's plan recommends (i.e. does not require) that certain lenders (see below) reduce loan payments to "affordable levels" for borrowers who cannot pay their mortgages as a result of login their jobs, or having their incomes reduced. The FDIC says that the new reduced mortgage payments would "be low enough to allow for reasonable living expenses in addition to the mortgage." The plan "applies only to the 53 financial institutions that relied on the F.D.I.C.’s insurance fund while acquiring failed banks. It does not include the four major mortgage lenders: Citigroup, Wells Fargo, JPMorgan Chase and Bank of America. These banks already have unemployment forbearance programs, though they differ from the F.D.I.C. plan."

The article offers some information about about the proprietary plans offered by Wells Fargo, Bank of America, Citigroup and JPMorgan Chase. A summary of those plans is below:

Citigroup - The article states that in March 2009 "Citigroup introduced its Homeowner Unemployment Assist program, which lowers the monthly payment for many unemployed borrowers to $500 for three months. To qualify, a homeowner must have a loan owned and serviced by CitiMortgage, and be 60 days or more delinquent, among other things."

Wells Fargo - The article states that Wells Fargo has had forbearance programs in place for years for years for "unemployed borrowers who cannot pay their mortgages". According to Debora K. Blume, a Wells Fargo spokeswoman, the forbearance terms are "highly dependent on the customer’s full financial and personal circumstances."

JPMorgan Chase - The article states that a spokesman for JPMorgan Chase said "if the borrower’s income is too low or not certain, but there are prospects for future employment, we may offer a loan forbearance program that allows a borrower to pay a reduced amount, or even zero, for a limited length of time, often three months."

Bank of America - The article states that "Bank of America offers up to six months of forbearance, according to Jack Schakett, the bank’s credit loss mitigation strategies executive." The article quotes Mr. Schakett as saying "borrowers generally receive better forbearance packages if they have "reasonable prospects for employment," though his bank also examines their financial management skills. Bank of America looks at mortgage-payment habits and overall debt payment success, among other things. People who were already struggling with their mortgage payments would be less likely to end up with a job that would help them be successful in the future."

According to the article, the lenders insist that "they have been working together, and with the federal government, to create more consistent strategies for unemployed borrowers." Personally, I laugh at this. Lenders are completely botching this situation and causing significantly more short sales and foreclosures than they need to.

If you are a homeowner in Middle Tennessee who has lost their job, but have either been turned down for a loan forbearance or loan modification, or you still cannot pay your mortgage and your home is worth less than your mortgage balance, please contact me to discuss selling your home via a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

Jim McCormack is a Nashville Real Estate Broker who Stops Foreclosure and Saves Homeowners' Credit via Short Sales in Nashville, Brentwood, Franklin, Nolensville, Spring Hill, Murfreesboro, Smyrna, LaVergne (La Vergne), Antioch, Mt. Juliet (Mount Juliet), Gallatin, Hermitage, Hendersonville and Middle Tennessee (Davidson, Maury, Rutherford, Sumner, Williamson and Wilson Counties). Jim Specializes in Short Sales and Foreclosures and Providing Sellers Short Sale Help and Foreclosure Help. Jim's Help is Free to Nashville TN Short Sale Sellers. Jim Helps Sellers Stop Bank and Mortgage Foreclosure with a Short Sale, or a Fast Cash Offer. Avoid Foreclosure by Working Directly with a Nashville Tennessee Real Estate Specialist and Investor who is Uniquely Skilled, Honest, Compassionate, Caring and Exceptionally responsive to the needs of his clients. Jim Encourages You to See What His Clients Say About Him. Jim is also a Murfreesboro and Nashville Cash House Buyer who solves real estate problems by buying houses, townhouses, townhomes, condos and multifamily properties AS IS for cash and closing quickly.

One can only hope that this "forebearance" arrangement is put into place more effectively. Many of my clients have explained their "forebearance" agreements from their lenders, many of them in the included 53 lender, as well as the Big 4. Typically, forebearance agreements are a way for homeowners to "Catch up" on payments they are behind to "forebear" foreclosure.. Many times these payments are NOT reduced they are increased so the homeowner will be current in the following months.

Not really a solution in my eyes, I can't afford to make my $1,200/month payment now, Mr. Bank, but I'll do everything I can to send you the $1,800 to $2,400/month over the next 6-12 months to make up for it!

"Forebearance" is a bad word for this, and I disagree that its a viable solution. Homeowners are getting modifications and making little or no contribution towards their mortgages at these same banks. What does that tell you?

Thanks for your post though, I missed this article last month, and appreciate your bringing this to light. Workout indeed!

Good comments. I think we can both agree that loan forbearance (in whatever form) and loan modifications will not solve the current problems since the current problems are due to too much debt, not monthly payments. If you owe 25%+ more than your home is worth chances are you will stop paying your mortgage at some point. Therefore, until the banks reduce principal balances all of these "solutions" are really just icing on a rotten cake.

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